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Let Consumers – Not the Government – Play Favorites

Published April 9, 2000

Fort Worth Star-Telegram

Monday’s verdict in the landmark antitrust case against Microsoft has produced a great deal of speculation about how the company, investors and consumers will be affected by the court’s actions.

But perhaps just as significant are the implications that the guilty verdict has for Microsoft’s competitors. The ability to innovate is essential to all businesses; and in the time since the trial began, Microsoft and its rivals have been innovating rapidly, and many have met with great success.

These new developments in software technologies prove that competition is thriving and suggest that software companies value their ability to innovate. If software companies really do value flexibility and ingenuity, then they don’t really want to play by the foolish rules that they’re applauding the Department of Justice for using to punish Microsoft.

If the logic employed in Judge Thomas Penfield Jackson’s verdict were universally enforced, other software companies would not feel secure in offering the types of innovations that have reshaped their industry and benefited consumers in the past.

A good example is Sun’s announcement last summer to offer Star Division’s office productivity software, which has traditionally been grounded on the user’s hard drive, in a Web-centric form.

   This means that StarOffice applications for word processing, spreadsheets and presentations that cost between $65 and $89 with the desktop-based Windows is now accessible for free via the Internet. Almost 2 million copies have been downloaded.

Sun gave away the software with the aim of profiting from other aspects of the StarPortal product, fees for “support and customization,” and increased sales of mission-critical servers. Although proof enough that Microsoft is not monopolizing the industry and stifling competition, there’s a larger implication to Sun’s plan.

Sun’s announcement to offer free Web-based software applications was similar to Microsoft’s decision to offer free Web-browsing capabilities as an enhancement of Windows.

When Microsoft attempted to offer its integrated browser free in hopes of profiting from the improved Windows operating system, the government slapped the company with charges of “anti-competitive behavior” and “predatory pricing.” Netscape, the first market leader in browsers, had always charged consumers for the software.

When Microsoft’s Internet Explorer was included free with Windows, Netscape’s Navigator was suddenly grossly overpriced at $39. This proved beneficial to consumers but lethal for Netscape’s browser profits.

This type of fierce competition is par for the course in the dynamic software industry, but Microsoft is the only company being punished for it. The actions of both Microsoft and Sun reflected shifts in computing and resulted in more options for consumers.

Sun Chief Executive Scott McNealy writes that with the introduction of these Web-based applications, “the rules have changed, and there’s no going back.”

Microsoft’s competitors who teamed up with the Justice Department would be wise to recognize that this is an essential truth about the competitive software market.

When it’s ignored in favor of protecting any one company from a changing marketplace, all companies in the industry stand to suffer. For the sake of their own freedom to innovate, they should think carefully about the precedents that penalties against Microsoft would set.

What happens to their “right to innovate” when the next paradigm-shifting idea is their own? A rapidly changing software industry can turn a cash-cow product into a “freebie” component of a broader marketing structure.

But the industry can also turn a market leader into a dinosaur, quicker than technocrats in Washington can spend $3 million on a pointless antitrust trial. This brutal process of elimination is the nature of the beast.

Jackson, government prosecutors and competitors erroneously claim that Microsoft is thwarting competitors and stifling innovation. Since the trial began last year, the software industry has demonstrated consistently that Microsoft cannot stifle competition.

The increased popularity of Linux’s “open” computer operating system and the unexpected success of Apple’s new personal computer, the iMac, prove that Microsoft faces serious competition in operating systems.

Hand-held devices, smart cell phones and so-called information appliances all render the personal computer merely one of many ways to access the Internet. All of these changes represent, to varying degrees, shifts in products and services.

The relentless competition and incessant pace of innovation in the industry is what keeps software executives and programmers up at night, and it’s what gives consumers new products and services at an unprecedented rate.

Consumers benefit when they pick winners and losers in the marketplace – not when they foot the bill for Justice Department lawyers to play favorites in the courts.

Jessica Melugin is a policy analyst at the Washington-based Competitive Enterprise Institute. This column was distribtued by Bridge News, 3 World Financial Center, 200 Vesey St., 28th Floor, New York, N.Y. 10281-1009. You may also call (212) 372-7510, fax (212) 372-2707 or send e-mail to [email protected].

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